Budget Due; Shortfall Expected Between $15B-$27B

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Lawmakers are expected to get their first look at the next Texas budget this week, a document that will reveal broad intentions for how to deal with a revenue shortfall that experts estimate at between $15 and $27 billion.

Republican leaders who hold all of the statewide positions in Texas have promised no tax increases, a signal deep cuts in state services are looming.

The massive size of the revenue shortfall means no corner of state government will emerge unscathed. Nursing homes, schools, colleges and universities and prisons are among the programs that could fall victim to the state budget ax.

The draft released this week is just the beginning of a long process, which probably won't be finalized until next summer, when the governor signs the Texas budget for 2012-13.

Republican Rep. Jim Pitts, chairman of the House Appropriations Committee, is expected to release his proposed budget late Tuesday and explain it to the House on Wednesday. His baseline budget cuts $15 billion from the current budget, without using any tax increases or money from the state's Rainy Day Fund.

"There are no sacred cows for this next biennium for our introduced bill," Pitts said last week. "So many people said, 'You cannot cut education'. You can't not cut education . We will be cutting every article within our budget. We will be cutting health and human, we will be cutting education and we'll be cutting our own budget in the Legislature."

Some analysts say the true shortfall could be much higher -- closer to $27 billion -- if lawmakers intend to maintain spending at current levels and still pay for enrollment growth in public schools and on Medicaid rolls, cost increases and other variables. That figure amounts to almost a third of discretionary state spending in the current budget.

The Texas Constitution requires a balanced budget, and state leaders and many of the new supermajority of conservative legislators elected in November have vowed not to raise taxes, meaning the shortfall will have to be overcome almost entirely with cuts.

The shortfall will be the driving force behind almost every decision the Legislature makes. From state parks and highways to health care programs for the poor and disabled, state agencies are bracing for the hatchet. With more than half of this year's $87 billion state budget dedicated to education and health care services, those areas are likely to sustain the most severe cuts.

Proposals so far have ranged from a loss of about 8,000 state jobs to the reduction in reimbursement rates for physicians, hospitals and nursing homes that participate in Medicaid -- a decrease that could eventually dry up participation in the program for poor and disabled Texans. Schools are expected to lose up to $6 billion and a proposal to allow larger class sizes could clear the way for school districts to lay off thousands of teachers.

"You cut Medicaid, you're cutting the money that goes to those providers," said Rep. Rene Oliveira, a Democrat from Brownsville who last session chaired the tax-writing House Ways and Means Committee. "Poor people are still going to find a way. They'll get to the emergency room. There will be a poor people's clinic that will be overflowing. We're going to all pay for that in higher taxes because it costs more to take care of an indigent person once they go to an emergency room.

"There is a point where cuts hurt the Texas economy, not just Texans."

Others have predicted college financial aid programs, such as Texas Grants, will be closed to incoming freshman, and the state's teacher retirement fund and health insurance for retired state employees also will suffer.

"If we do these cuts at this amount, it may not be an apocalypse, but it will be a very sad day for millions of Texans," Oliveira said.

He has been reviewing outdated exemptions in the state tax code that could be repealed to add more state revenue to ease the pain of the cuts. But, he said, there is no political will from the new supermajority of conservative Republicans in the House to close those exemptions or overhaul the state's underperforming business tax.

"Right now, I respect the big three (Gov. Rick Perry, Lt. Gov. David Dewhurst and Speaker Joe Straus), and I respect what they're saying that there's going to be no new taxes," Oliveira said. "Once people really know the depth of these cuts, when they see the bill that Chairman Pitts is going to lay out, the incredible severity, then perhaps some of these things may come back on the table at some point."

Because of the recession, state tax receipts for the 2010 budget year have fallen behind projections, leaving a more than $4 billion deficit in the current budget. The state is also on the hook to fill a hole of about $11 billion left by federal stimulus money and other state savings that were used in the current budget but are no longer available. Added costs come from more kids in public schools and health care programs for the poor and disabled, and spikes in health care costs.

As observers and interest groups await the first draft of the next two-year budget, it's clear there will be more losers than winners.